Shares plunge as takeover talks aborted
The future of Billabong International hangs in the balance after takeover talks collapsed and it flagged lower earnings for the third time in six months, causing its share price to plunge by almost 50 per cent.
The Australian surfwear brand said on Tuesday it was in talks with private equity groups - Altamont Capital Partners and Sycamore Partners, with Billabong America's head, Paul Naude - about refinancing options and selling assets, after they walked away from discussions about a full takeover.
The company added that weaker Australian trading and higher start-up costs for an online business in Europe would see earnings before interest, tax, depreciation and amortisation decline to between $67 million and $74 million. Its previous guidance for the 2013 financial year was $74 million to $85 million.
Billabong tipped the possible sale of Canadian retail chain West 49 as part of its cost cutting.
Shares in the firm closed 49.5 per cent lower at 23¢ after a month-long trading halt was lifted, leaving the company with a market capitalisation of just $110.2 million. Billabong shares had reached a high of $14.06 in 2007.
Billabong chairman Ian Pollard said refinancing would give the company a suitable capital structure and allow a continuation of its "reform agenda".
"It's our intention to conclude these discussions as soon as practically possible while aggressively reducing costs across all our global operations," Mr Pollard said.
Analysts said the market was concerned about whether Billabong would survive if it did not secure funding or buyers for parts of its business.
"All this is still up in the air and until that is sorted out, I don't think you can make an investment in this business," one analyst said.
"Until the financial stability of the business is reinstated, no one is going to value the assets at the value that they are really worth."
Another analyst said it was worrying that Billabong's market capitalisation had fallen below its outstanding debt, which was reported as $152.2 million in its 2013 half-year results.
The analyst said there were questions as to whether investors would support a capital raising that would see the share price diluted further.
The firm posted a record loss of $536.6 million in the first half of this financial year as its wrote off most of the value of its main brand.
Billabong has cut costs and product lines, sold assets, changed its chief executive and revamped its strategy in a bid to return to profitability. It was the subject of several takeover bids from private equity firms.
It rejected TPG's first bid of $3.30 a share in February last year, then a second offer from TPG at $1.45, and an offer from another private equity firm was withdrawn after talks with Billabong.